There isn’t a state in the country that is adequately protecting families from debt collectors, debt buyers, and creditors with exemption laws, allowing individuals to keep some of their assets or paychecks when a garnishment order or judgment is awarded, according to a report issued this week by the National Consumer Law Center. The report calls on state legislatures to reform their exemption laws — especially as individuals look to regain financial stability as the pandemic’s protections expire — because without those protections, states are preventing their residents from enjoying a fresh start.
The report graded each state on its exemption laws, looking at five key areas:
- Preventing creditors from seizing so much of the debtor’s wages that the debtor is pushed below a living wage;
- Allowing the debtor to keep a used car of at least average value;
- Preserving the family’s home — at least a median-value home;
- Preserving a basic amount in a bank account so that the debtor’s funds to pay essential costs such as rent, utilities, and commuting expenses are not cleaned out; and
- Preventing seizure and sale of the debtor’s necessary household goods
No state received a “A” from the NCLC, while 11 received a “B”, 19 received a “C”, 17 received a “D”, and five — Georgia, Kentucky, Utah, Michigan, and New Jersey — received an “F”.
The report looked at each of the five criteria and again ranked each state based on its protections in that area while also providing details of what is allowed to be protected in each state. The tables offer important information to companies in the accounts receivable management industry to help better understand exemption laws and what can be seized or garnished.
Based on the ratings criteria, the NCLC issued a series of recommendations to states. It’s important for the ARM industry to understand these recommendations because they might start to see states propose changes that look a lot like what the NCLC is asking for. The report notes that a number of states — Arizona, Connecticut, Maine, Montana, Virginia, and Washington — made “particularly significant improvements” during the pandemic.